Despite an already strong run, MITCON Consultancy & Engineering Services Limited (NSE:MITCON) shares have been powering on, with a gain of 49% in the last thirty days. Looking back a bit further, it’s encouraging to see the stock is up 72% in the last year.
Since its price has surged higher, MITCON Consultancy & Engineering Services may be sending bearish signals at the moment with its price-to-earnings (or “P/E”) ratio of 43.4x, since almost half of all companies in India have P/E ratios under 30x and even P/E’s lower than 17x are not unusual. Nonetheless, we’d need to dig a little deeper to determine if there is a rational basis for the elevated P/E.
For example, consider that MITCON Consultancy & Engineering Services’ financial performance has been pretty ordinary lately as earnings growth is non-existent. It might be that many are expecting an improvement to the uninspiring earnings performance over the coming period, which has kept the P/E from collapsing. You’d really hope so, otherwise you’re paying a pretty hefty price for no particular reason.
We don’t have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on MITCON Consultancy & Engineering Services’ earnings, revenue and cash flow.
How Is MITCON Consultancy & Engineering Services’ Growth Trending?
MITCON Consultancy & Engineering Services’ P/E ratio would be typical for a company that’s expected to deliver solid growth, and importantly, perform better than the market.
If we review the last year of earnings, the company posted a result that saw barely any deviation from a year ago. However, a few strong years before that means that it was still able to grow EPS by an impressive 119% in total over the last three years. Therefore, it’s fair to say the earnings growth recently has been superb for the company.
This is in contrast to the rest of the market, which is expected to grow by 25% over the next year, materially lower than the company’s recent medium-term annualised growth rates.
With this information, we can see why MITCON Consultancy & Engineering Services is trading at such a high P/E compared to the market. Presumably shareholders aren’t keen to offload something they believe will continue to outmanoeuvre the bourse.
The Key Takeaway
The large bounce in MITCON Consultancy & Engineering Services’ shares has lifted the company’s P/E to a fairly high level. While the price-to-earnings ratio shouldn’t be the defining factor in whether you buy a stock or not, it’s quite a capable barometer of earnings expectations.
As we suspected, our examination of MITCON Consultancy & Engineering Services revealed its three-year earnings trends are contributing to its high P/E, given they look better than current market expectations. Right now shareholders are comfortable with the P/E as they are quite confident earnings aren’t under threat. Unless the recent medium-term conditions change, they will continue to provide strong support to the share price.
Having said that, be aware MITCON Consultancy & Engineering Services is showing 3 warning signs in our investment analysis, and 2 of those make us uncomfortable.
If these risks are making you reconsider your opinion on MITCON Consultancy & Engineering Services, explore our interactive list of high quality stocks to get an idea of what else is out there.
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Find out whether MITCON Consultancy & Engineering Services is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.